10-Q 1 tenq.txt SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2001 -------------- Commission File Number 0-19294 ------- REHABCARE GROUP, INC. --------------------- (Exact name of Registrant as specified in its charter) Delaware 51-0265872 ------------------------------- ------------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification Number) incorporation or organization) 7733 Forsyth Boulevard, Suite 1700, St. Louis, MO 63105 ------------------------------------------------------- (Address of principal executive offices and zip code) 314-863-7422 ---------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Indicate the number of shares outstanding of the Registrant's common stock, as of the latest practicable date. Class Outstanding at May 7, 2001 -------------------------------------- -------------------------- Common Stock, par value $.01 per share 16,985,356 1 of 14 REHABCARE GROUP, INC. Index Part I. - Financial Information Item 1. - Condensed Consolidated Financial Statements Condensed consolidated balance sheets, March 31, 2001 (unaudited) and December 31, 2000 3 Condensed consolidated statements of earnings for the three months ended March 31, 2001 and 2000 (unaudited) 4 Condensed consolidated statements of cash flows for the three months ended March 31, 2001 and 2000 (unaudited) 5 Notes to condensed consolidated financial statements (unaudited) 6 Item 2. - Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Part II. - Other Information Item 4. - Submission of matters to Security Holders 12 Item 6. - Exhibits and Reports on Form 8-K 13 Signatures 14 2 of 14 PART 1. - FINANCIAL INFORMATION Item 1. - Condensed Consolidated Financial Statements ----------------------------------------------------- REHABCARE GROUP, INC. Condensed Consolidated Balance Sheets (dollars in thousands, except per share data)
March 31, December 31, 2001 2000 ---- ---- Assets: (unaudited) Current assets: Cash and cash equivalents $ 8,758 7,942 Marketable securities, available-for-sale 3,025 3,025 Accounts receivable, net of allowance for doubtful accounts of $5,433 and $5,347, respectively 89,005 84,033 Income taxes receivable -- 3,672 Deferred tax assets 6,464 4,872 Prepaid expenses and other current assets 1,354 1,158 ------- ------- Total current assets 108,606 104,702 Marketable securities, trading 2,865 2,383 Equipment and leasehold improvements, net 14,161 12,427 Excess of cost over net assets acquired, net 103,945 104,782 Other 4,869 4,799 ------- ------- $234,446 229,093 ======= ======= Liabilities and Stockholders' Equity: Current liabilities: Current portion of long-term debt $ 2,868 2,868 Accounts payable 2,400 2,790 Accrued salaries and wages 24,465 24,846 Accrued expenses 11,316 10,012 Income taxes payable 1,539 -- ------- ------- Total current liabilities 42,588 40,516 Deferred compensation and other long-term liabilities 3,170 2,679 Deferred tax liabilities 2,537 2,504 Long-term debt, less current portion 5,334 65,434 ------- ------- Total liabilities 53,629 111,133 ------- ------- Stockholders' equity: Preferred stock, $.10 per value, 10,000,000 shares, none issued and outstanding -- -- Common stock, $.01 par value; authorized 20,000,000 shares, issued 19,277,757 and 17,409,584 shares, respectively 193 174 Additional paid-in capital 105,163 49,503 Retained earnings 93,200 86,022 Less common stock held in treasury at cost, 2,302,898 shares (17,757) (17,757) Accumulated other comprehensive earnings 18 18 ------- ------- Total stockholders' equity 180,817 117,960 ------- ------- $234,446 229,093 ======= =======
See accompanying notes to condensed consolidated financial statements. 3 of 14 REHABCARE GROUP, INC. Condensed Consolidated Statements of Earnings (dollars in thousands, except per share data) (Unaudited)
Three Months Ended March 31, 2001 2000 ---- ---- Operating revenues $ 130,724 105,933 Costs and expenses: Operating expenses 93,033 75,244 General and administrative 22,527 18,586 Depreciation and amortization 2,122 1,516 ------- ------- Total costs and expenses 117,682 95,346 ------- ------- Operating earnings 13,042 10,587 Interest income 62 49 Interest expense (1,186) (1,324) Other income 9 8 ------- ------- Earnings before income taxes 11,927 9,320 Income taxes 4,749 3,709 ------- ------- Net earnings $ 7,178 5,611 ======= ======= Net earnings per common share: Basic $ .47 .41 ======= ======= Diluted $ .42 .37 ======= ======= Weighted average number of common shares outstanding: Basic $ 15,434 13,850 ======= ======= Diluted $ 17,014 15,366 ======= =======
See accompanying notes to condensed consolidated financial statements. 4 of 14 REHABCARE GROUP, INC. Condensed Consolidated Statements of Cash Flows (dollars in thousands) (Unaudited)
Three Months Ended March 31, 2001 2000 ---- ---- Cash flows from operating activities: Net earnings $ 7,178 5,611 Adjustments to reconcile net earnings to net cash provided by (used in)operating activities: Depreciation and amortization 2,122 1,516 Provision for losses on accounts receivable 929 992 Income tax benefit realized on employee stock option exercises 4,001 250 Change in assets and liabilities: Deferred compensation 491 (48) Accounts receivable, net (5,901) (14,071) Prepaid expenses and other current assets (196) 201 Other assets (1) (320) Accounts payable and accrued expenses 914 (1,229) Accrued salaries and wages (381) 774 Income taxes payable and deferred 3,652 891 ------ ----- Net cash provided by (used in) 12,808 (5,433) ------ ----- operating activities Cash flows from investing activities: Additions to equipment and leasehold improvements, net (2,668) (1,516) Purchase of marketable securities (591) (489) Deferred contract costs (34) (334) Proceeds from sale/maturities of investments 109 133 Other (386) (355) ------ ----- Net cash used in investing activities (3,570) (2,561) ------ ----- Cash flows from financing activities: Proceeds from (repayments to) revolving credit facility, net (60,100) 10,900 Proceeds from sale of common stock, net 49,581 -- Payments on long-term debt -- (2,909) Exercise of stock options 2,097 228 ------ ----- Net cash provided by (used in) financing activities (8,422) 8,219 ------ ----- Net increase in cash and cash equivalents 816 225 Cash and cash equivalents at beginning of period 7,942 738 ------ ----- Cash and cash equivalents at end of period $ 8,758 963 ====== =====
See accompanying notes to condensed consolidated financial statements. 5 of 14 REHABCARE GROUP, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ---------------------------------------------------- (Unaudited) Note 1. - Basis of Presentation ------------------------------- The condensed consolidated balance sheets and related condensed consolidated statements of earnings and cash flows contained in this Form 10-Q, which are unaudited, include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany accounts and activity have been eliminated in consolidation. In the opinion of management, all adjustments necessary for a fair presentation of such financial statements have been included. Adjustments consisted only of normal recurring items. The results of operations for the three months ended March 31, 2001, are not necessarily indicative of the results to be expected for the fiscal year. Certain prior year amounts have been reclassified to conform with the current year presentation. The condensed consolidated financial statements do not include all information and footnotes necessary for a complete presentation of financial position, results of operations and cash flows in conformity with generally accepted accounting principles. Reference is made to the Company's audited consolidated financial statements and the related notes as of December 31, 2000 and 1999 and for each of the years in the three year period ended December 31, 2000, included in the Annual Report on Form 10-K on file with the Securities and Exchange Commission, which provide additional disclosures and a further description of our accounting policies. Note 2. - Publicly Underwritten Equity Offering ----------------------------------------------- On March 20, 2001, the Company issued and sold 1,455,000 shares of its common stock in a publicly underwritten equity offering. The net proceeds from this transaction of $49.6 million were used to reduce the Company's outstanding balance on its revolving credit facility. As part of this transaction, certain shareholders of the Company sold 270,000 shares of common stock. 6 of 14 Note 3. - Earnings per Share ---------------------------- The following table sets forth the computation of basic and diluted earnings per share:
Three Months Ended March 31, 2001 2000 ---- ---- (in thousands, except per share data) Numerator: Numerator for basic earnings per share - earnings available to common stockholders (net earnings) $ 7,178 5,611 Effect of dilutive securities - after-tax interest on convertible subordinated promissory notes -- 28 ----- ----- Numerator for diluted earnings per share - earnings available to common stockholders after assumed conversions $ 7,178 5,639 ====== ====== Denominator: Denominator for basic earnings per share - weighted-average shares outstanding 15,434 13,850 Effect of dilutive securities: Stock options 1,580 1,098 Convertible subordinated promissory notes -- 418 ------ ------ Denominator for diluted earnings per share - adjusted weighted-average shares and assumed conversions 17,014 15,366 ====== ====== Basic earnings per share $ .47 .41 ====== ====== Diluted earnings per share $ .42 .37 ====== ======
7 of 14 Note 4. - Industry Segment Information -------------------------------------- The Company operates in two product lines that are managed separately based on fundamental differences in operations: temporary healthcare staffing services and physical rehabilitation program management services. Physical rehabilitation program management includes inpatient programs (including acute rehabilitation and skilled nursing units), outpatient therapy programs, and contract therapy programs. All of the Company's services are provided in the United States. Summarized information about the Company's operations for the three months ended March 31, 2001 and 2000 in each industry segment is as follows:
Three Months Ended March 31, 2001 2000 ---- ---- (dollars in thousands) Revenues from Unaffiliated Customers ------------------------------------ Healthcare staffing $ 74,281 59,562 Inpatient 31,057 30,511 Outpatient 13,046 9,660 Contract therapy 12,340 6,200 ------- ------- Total $ 130,724 105,933 ======= ======= Operating Earnings ------------------ Healthcare staffing $ 3,453 2,679 Inpatient 6,261 5,278 Outpatient 1,909 1,954 Contract therapy 1,419 676 ------- ------- Total $ 13,042 10,587 ======= ======= Total Assets ------------ Healthcare staffing $ 110,483 104,995 Inpatient 64,314 55,826 Outpatient 31,468 20,066 Contract therapy 28,181 21,407 ------- ------- Total $ 234,446 202,294 ======= ======= Depreciation and Amortization ----------------------------- Healthcare staffing $ 769 624 Inpatient 907 631 Outpatient 280 165 Contract therapy 166 96 ------- ------- Total $ 2,122 1,516 ======= ======= Capital Expenditures -------------------- Healthcare staffing $ 444 556 Inpatient 2,083 912 Outpatient 113 39 Contract therapy 28 9 ------- ------- Total $ 2,668 1,516 ======= =======
8 of 14 Item 2. - Management's Discussion and Analysis of Financial Condition and -------------------------------------------------------------------------------- Results of Operations --------------------- Results of Operations --------------------- The Company provides temporary healthcare staffing and physical rehabilitation program management services for hospitals, nursing homes and other long-term care facilities. The Company derives its revenue from two product line segments: temporary healthcare staffing services and physical rehabilitation program management services. Our physical rehabilitation program management services include inpatient programs (including acute rehabilitation and skilled nursing units), outpatient therapy programs, and contract therapy programs.
Three Months Ended March 31, 2001 2000 ---- ---- Operating Statistics: Healthcare staffing: Average number of staffing offices 103 83 Weeks worked 59,370 52,864 Program management: Inpatient (acute rehabilitation and skilled nursing): Average number of programs 138.0 134.8 Average admissions per program 98.8 94.1 Average bed capacity 2,724 2,634 Average billable length of stay (days) 13.7 14.3 Billable patient days served 187,010 181,856 Admissions 13,634 12,681 Average daily billable census 2,078 1,998 Average billable occupied beds per program 15.1 14.8 Total programs in operation at end of period 138 132 Outpatient programs: Average number of programs 64.5 46.0 Patient visits 375,008 259,409 Units of service 1,072,629 717,812 Average units of service per program 16,630 15,605 Total programs in operation at end of period 65 46 Contract therapy: Average number of locations 215.0 134.8 Number of locations at end of period 219 141 Average revenue per location 57,394 45,993
Three Months Ended March 31, 2001 Compared to Three Months Ended March 31, 2000 ------------------------------------------------------------------------------- Operating revenues during the first quarter 2001 increased by $24.8 million, or 23.4%, to $130.7 million as compared to the first quarter of 2000. The September 15, 2000 acquisition of DiversiCare Rehab Services, Inc. ("DiversiCare") accounted for 7.8% of the net increase. Staffing revenue increased by 24.7% from $59.6 million in the first quarter of 2000 to $74.3 million in the first quarter of 2001, reflecting a 12.3% increase in weeks worked from 52,864 to 59,370. Operating earnings for the staffing division were $3.5 million, a 28.9% increase over the $2.7 million earned in the first quarter of 2000. 9 of 14 Inpatient program revenue increased by 1.8% from $30.5 million in the first quarter of 2000 to $31.1 million in the first quarter of 2001. A 2.4% increase in the average number of inpatient programs managed from 134.8 to 138.0, and a 2.0% increase in the average daily billable census per inpatient program from 14.8 to 15.1 resulted in a 2.8% increase in billable patient days to 187,010. The increase in billable census per program for inpatient programs is primarily attributable to a 5.0% increase in average admissions per program from 94.1 to 98.8 offset by a 4.2% decrease in the average length of stay to 13.7. The increase in patient days was offset by a 0.5% decrease in the average per diem billing rates. Operating earnings for the inpatient division increased by 18.6% to $6.3 million in the first quarter of 2001, compared to $5.3 million in the first quarter of 2000. Outpatient revenue increased by 35.1% from $9.7 million in the first quarter of 2000 to $13.0 million in the first quarter of 2001, reflecting $1.9 million from the September 15, 2000 acquisition of DiversiCare, an increase in the average number of outpatient programs managed from 46.0 to 64.5 (including 14.0 from DiversiCare) and a 6.6% increase in units of service per program. Operating earnings from the outpatient division were $1.9 million in the first quarter of 2001, a 2.3% decrease compared to the $2.0 million earned in the first quarter of 2000. Contract therapy revenue increased by 99.0% from $6.2 million in the first quarter of 2000 to $12.3 million in the first quarter of 2001, reflecting a 59.5% increase in the average number of contract therapy locations managed from 134.8 to 215.0, and a 24.8% increase in average revenue per location. Operating earnings for the contract therapy division were $1.4 million in the first quarter of 2001, a $743,000 increase from the $676,000 in operating earnings for the first quarter of 2000. Operating expenses for the three months ended March 31, 2001 increased by $17.8 million, or 23.6%, to $93.0 million as compared to the three months ended March 31, 2000. The DiversiCare acquisition accounted for approximately 7.8% of the net increase. The remaining increase in operating expenses is attributable to a 12.3% increase in the number of weeks worked from travel and per diem staffing, a 59.5% increase in the average number of contract therapy locations, a 31.4% increase in outpatient units of service (excluding 129,564 units of service from DiversiCare), and a 2.4% increase in the average number of inpatient programs. The aggregate excess of direct operating expenses over operating revenues associated with non-exempt inpatient acute rehabilitation programs increased from $81,000 to $173,000, on a decrease in the average number of non-exempt units managed from 7.0 to 3.0. The per program average excess of operating expenses over operating revenues increased from $12,000 to $58,000 reflecting a decrease in the average revenue per unit from $68,000 to $34,000 and a 36.7% decrease in admissions per average unit to 28.2. The average excess of operating expenses over operating revenues for an inpatient acute rehabilitation program during its non-exempt year can range to as high as $150,000 to $200,000. General and administrative expenses increased by $3.9 million, or 21.2% from $18.6 million in the first quarter of 2000 to $22.5 million in the first quarter of 2001, reflecting increases in corporate office expenses as well as marketing, business development, operations and professional services in support of the increase in outpatient programs, contract therapy locations managed and per diem staffing offices operated, plus the addition of general and administrative expenses from the DiversiCare acquisition. General and administrative expenses as a percentage of revenue decreased from 17.5% in the first quarter of 2000 to 17.2% in the first quarter of 2001 as a result of the consolidation of certain corporate office functions. Depreciation and amortization increased $606,000 reflecting an increase in goodwill from acquisitions and depreciation on equipment purchased, plus the change in goodwill amortization period from 40 years to 25 years, effective prospectively on January 1, 2001 on the acquisitions of Physical Therapy Resources, Inc., Team Rehab, Inc./Moore Rehabilitation Services, Inc.; RehabUnlimited, Inc/Cimarron Health Care, Inc. Rehabilitative Care Systems of America, Inc.; Therapeutic Systems, Inc.; Salt Lake Physical Therapy Associates, Inc.; AllStaff, Inc.; and DiversiCare Rehab Services, Inc. The amortization periods for the acquisitions of Advanced Rehabilitation Resources, Inc,; Healthcare Staffing Solutions, Inc,; StarMed Staffing, Inc.; and eai Healthcare Staffing Solutions, Inc., which had businesses that were more national in scope, remain at 40 years. Interest expense decreased $138,000 reflecting the repayment of principal as a result of the March 20, 2001 publicly underwritten equity offering and cash generated from operations. See further discussion of the publicly underwritten equity offering under "Note 2. - Publicly Underwritten Equity Offering". 10 of 14 Earnings before income taxes increased by $2.6 million, or 28.0%, from $9.3 million in the first quarter of 2000 to $11.9 million in the first quarter of 2001. The provision for income taxes for 2001 was $4.7 million compared to $3.7 million in 2000, reflecting effective income tax rates of 39.8% for these periods. Net earnings increased by $1.6 million, or 27.9%, to $7.2 million from $5.6 million in 2000. Diluted earnings per share increased by 15.0% to $.42 from $.37 on a 10.7% increase in the weighted-average shares and assumed conversions outstanding. The increase in weighted average shares outstanding is attributable primarily to the secondary equity offering, stock option grants and exercises and the increase in the dilutive effect of stock options as a result of an increase in the average market price of the Company's stock relative to the underlying exercise prices of outstanding options. 11 of 14 Liquidity and Capital Resources ------------------------------- As of March 31, 2001, the Company had $11.8 million in cash and current marketable securities and a current ratio, the amount of current assets divided by current liabilities, of 2.6:1. Working capital increased by $1.8 million to $66.0 million as of March 31, 2001, compared to $64.2 million as of December 31, 2000. The increase in working capital is primarily due to working capital generated from operations and the exercise of stock options. Net accounts receivable were $89.0 million at March 31, 2001, compared to $84.0 million at December 31, 2000. The number of day's average net revenue in net receivables was 59.9 at March 31, 2001 compared to 63.8 at December 31, 2000. This decrease was the result of the consolidation of our financial back office during the fourth quarter of 2000, the implementation of new financial software enabling improved tracking of receivables and payables, and the vigilance of our billing and collections team. The Company's operating cash flows constitute its primary source of liquidity and historically have been sufficient to fund its working capital, capital expenditures, internal business expansion and debt service requirements. The Company expects to meet its future working capital, capital expenditures, internal and external business expansion and debt service requirements from a combination of internal sources and outside financing. The Company has a $125.0 million revolving line of credit with a balance outstanding as of March 31, 2001 of $3.7 million. Part II. - OTHER INFORMATION Item 4 - Submission of Matters to Security Holders -------------------------------------------------- The annual Meeting of Stockholders of the Company was held on Thursday, May 3, 2001, at which time the stockholders voted to elect the seven incumbent directors to hold office until the next annual meeting of stockholders of the Company or until their successors have been duly elected and qualified. The names of each of the directors of the Company who were reelected at the Annual Meeting and the votes cast "FOR" or for which authority to vote was "WITHHELD" is as follows:
Name For Withheld Authority ---- --- ------------------ William G. Anderson 11,850,914 992,886 Colleen Conway-Welch 12,487,964 355,836 Alan C. Henderson 10,134,984 2,708,816 Richard E. Ragsdale 12,488,024 355,776 John H. Short 12,488,664 355,136 H. Edwin Trusheim 12,486,514 357,286 Theodore M. Wight 12,488,664 355,136
The stockholders also considered and voted upon an amendment of Article Four of the Restated Certificate of Incorporation, as amended, of RehabCare to increase the total number of authorized shares of stock from 30,000,000 to 70,000,000 shares and to increase the number of authorized shares of common stock, $01 par value per share, from 20,000,000 to 60,000,000 shares. This amendment was approved by the stockholders by a vote of 11,295,873 "for", 1,525,678 "against" and 22,249 "abstain". 12 of 14 Item 6 - Exhibits and Reports on Form 8-K ----------------------------------------- (a) Exhibits None (b) Reports on Form 8-K None 13 of 14 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. REHABCARE GROUP, INC. May 9, 2001 By /s/ Gregory J. Eisenhauer ------------------------------- Gregory J. Eisenhauer Senior Vice President and Chief Financial Officer By /s/ James M. Douthitt ------------------------------ James M. Douthitt Senior Vice President and Chief Accounting Officer 14 of 14